Please note that this presentation contains forward-looking statements within the provisions of the Private Securities Litigation Reform Act of 1995 that are based on current expectations, estimates, and projections about the industry, markets, and economic environment in which the company operates. Such statements involve risks and uncertainties that could cause results to differ materially from the results discussed in these statements. These risks are detailed in the company's annual report and Form 10-K filed with the Securities and Exchange Commission.
Today's call presenters are excuse me, Mark Tryniski, President and Chief Executive Officer, and Joseph Sutaris, Executive Vice President and Chief Financial Officer. They will be joined by Joseph Serbun, Executive Vice President and Chief Banking Officer, for the question-and-answer session. Gentlemen, you may begin.
Thank you, Gary. Good morning, everyone, and thank you all for joining our first-quarter conference call. The quarter was generally pretty good and maybe even modestly better than we expected on a recurring basis. GAAP earnings were obviously very strong, but positively impacted by a $0.10 per share reserve release and a $0.08 per share benefit from PPP fees. About $0.79 for the quarter on a recurring basis. The margin came in a bit better than we forecasted, and our non-banking businesses continue to accelerate growth on both the revenue and margin lines. Our benefits business was up 12% in EBITDA over the last year. The wealth management business was up 35%, and the insurance business was up 28%.
We also had an ever so slight bit of organic loan growth in the quarter ex PPP, which is atypical for us in any first quarter, and loan quality is in as good a shape as I've ever seen it. We expect a solid second and third quarter performance there. On the challenges front, the margin may continue to contract. We need to rebuild our commercial pipeline, which is recovering slowly from the impact of the pandemic. In general, I think we got a very good start to the year. Joe?
Thank you, Mark, and good morning, everyone. As Mark noted, the first quarter earnings results were solid, with fully diluted GAAP in operating earnings per share of $0.97. The GAAP earnings results were $0.21 per share, or 27.6% higher than the first quarter 2020 GAAP earnings results and $0.20 per share or 26% better on an operating basis. The increase was attributable to a significant decrease in the provision for credit losses, higher revenues, and lower operating expenses, offset in part by increases in income taxes with fully diluted shares outstanding. Comparatively, the company reported GAAP earnings per share of $0.86 and operating earnings per share of $0.85 in the linked fourth quarter of 2020. The company reported total revenues of $152.5 million in the first quarter of 2021, a $3.8 million, or 2.6%, increase over the prior year's first quarter revenues of $148.7 million.
The increase in total revenues between the periods was driven by an increase in net interest income and the higher non-interest revenues in the company's financial services businesses, offset in part by lower banking non-interest revenues. Total revenues were also up $1.9 million or 1.2% from the linked fourth quarter, driven by increases of net interest income, banking non-interest revenues and financial services business revenues. Although several factors contributed to the net improvement in net interest income, the results were aided by the recognition of net deferred PPP loan origination fees of $5.9 million in the quarter, due largely to the forgiveness of $251.3 million of Paycheck Protection Program loans. The company's tax-equivalent net interest margin was 3.03% in the first quarter of 2021 as compared to 3.65% in the first quarter of 2020 and 3.05% in the linked fourth quarter of 2020.
Net interest margin results continued to be negatively impacted by the significant increase in low-yield cash equivalents between the comparable annual quarters. Average cash equivalents increased $1.55 billion between the first quarter of 2020 and the first quarter of 2021 due to the net inflows of stimulus funds from PPP between the periods. The tax-equivalent yield on earning assets was 3.15% in the first quarter of 2021 as compared to 3.93% in the first quarter of 2020, a 78 basis point decrease between the comparable periods. The company's total cost of deposits remained low, averaging 11 basis points during the first quarter of 2021. Non-interest revenues were down $0.1 million, or 0.2%, between the first quarter of 2021 and the first quarter of 2020.
The decrease in non-interest revenues was driven by a $2.4 million, or 13.4%, decrease in banking-related non-interest revenues, which was largely offset by a $2.3 million, or 5.7%, increase in financial services business non-interest revenues. The decrease in banking-related non-interest revenues was driven by a $2.2 million decrease in deposit service fees, including customer overdraft occurrences, a $0.2 million decrease in mortgage banking income. Employee benefit services revenues were up $1.2 million or 4.6% over the first quarter 2020 results, driven by increases in employee benefit trust and custodial fees. Wealth management revenues were also up $1.1 million, or 14.9%, over the same period due to higher investment management advisory trust services revenues. Insurance services revenues also increased slightly over first quarter 2020 results.
The company recorded a $5.7 million net benefit in the provision for credit losses during the first quarter of 2021 due to a significant improvement in the economic outlook and very low levels of net charge-offs. Conversely, the company reported a $5.6 million provision for credit losses during the first quarter of 2020 as the economic outlook worsened due to the pandemic. Net charge-offs for the first quarter of 2021 were $0.4 million, or two basis points annualized, as compared to $1.6 million or nine basis points annualized of net charge-offs recorded during the first quarter of 2020. For comparative purposes, the company recorded a $3.1 million net benefit in the provision for credit losses during the linked fourth quarter of 2020. The company reported $93.3 million in total operating expenses in the first quarter of 2021, as compared to $93.7 million in the first quarter of 2020.
The $0.4 million or 0.4% decrease in operating expenses was attributable to a $0.6 million or 1.1% decrease in salaries and employee benefits, a $1.7 million or 16.4% decrease in other expenses, a $0.3 million or 8.6% decrease in the amortization of intangible assets, and a $0.3 million decrease in acquisition-related expenses, partially offset by a $2 million or 19% increase in data processing and communication expenses, and $0.6 million or 5.2% increase in occupancy expenses. The decrease in salaries and benefits expense was driven by a decrease in retirement-related severance and medical benefit costs, offset in part by increases in merit and incentive-related employee wages and payroll taxes. Other expenses were down due to the general decrease in the level of business activities as a result of the COVID-19 pandemic.
The increase in data processing communication expenses was due to the second quarter 2020 Steuben acquisition and the company's implementation of new customer-facing digital technology and back office systems during 2020. The increase in occupancy costs was driven by the Steuben acquisition. Comparatively, the company reported $95 million in total operating expenses in the linked fourth quarter of 2020. The company closed the first quarter of 2021 with total assets of $14.62 billion. This was up $689.1 million or 4.9% from the end of the linked fourth quarter and up $2.81 billion or 23.8% from one year earlier. Similarly, average interest-earning assets for the first quarter of 2021 of $12.69 billion were up $377.6 million or 3.1% from the linked fourth quarter of 2020 and up $2.65 billion or 26.4% from one year prior.
The very large increase in total assets and average interest-earning assets over the prior 12 months was driven by the second quarter 2020 acquisition of Steuben Trust and large inflows of government stimulus and related deposit funding and PPP originations. As of March 31st, 2021, the company's business lending portfolio included 874 first-draw PPP loans with a total balance of $219.4 million and 1,819 second-draw PPP loans with a total balance of $191.5 million. This compares to 3,417 first-draw PPP loans with a total balance of $470.7 million at the end of the fourth quarter of 2020. The company expects to recognize through interest income the majority of its remaining for first-draw net deferred PPP fees totaling $3.4 million during the second quarter of 2021, and the majority of its second-draw net deferred PPP fees totaling $8.3 million in the third and the fourth quarters of 2021.
Ending loans at March 31st, 2021, were $7.37 billion, $47.6 million, or 0.6% lower than the linked fourth quarter ending loans of $7.42 billion, but up $502.2 million or 7.3% from one year prior. The growth in ending loans year-over-year was driven by the acquisition of $339.7 million of Steuben loans in the second quarter of 2020 and $399.2 million net increase in PPP loans between the periods. The decrease in loans outstanding on a linked-quarter basis was driven by a $48.3 million decrease in business lending due to the decline in PPP loans. Exclusive of PPP loans net of deferred fees, the company's ending loans increased $14.9 million or 0.2% during the first quarter.
On a linked quarter basis, the average book value of the investment securities decreased $118.3 million or 3.1% due to the maturity of $666.1 million of investment securities during the fourth quarter, a significant portion of which occurred late in the quarter, offset in part by investment security purchases during the first quarter of 2021 totaling $546.8 million. Average cash equivalents increased by $587.5 million or 54.4% due to the continued growth of deposits. The average taxable yield on the investments during the first quarter of 2021 was 1.42%, including 2.02% taxable yield on the investment securities portfolio and 10 basis points of yield on cash equivalents. At the end of the quarter, the company's cash equivalents balances totaled $2 billion.
During the first quarter, the company redeemed $75 million of floating rate junior subordinated debt and $2.3 million of associated capital securities, which was initially issued by the company in 2006. The company's capital reserves remained strong in the fourth quarter. The company's net tangible equity to net tangible assets ratio was 8.48% at March 31st, 2021. This was down from 10.78% a year earlier and 9.92% at the end of 2020. The decrease in net tangible equity to net tangible assets ratio is driven by the stimulus-aided asset growth, a decrease in accumulated other comprehensive income, and an increase in tangible assets. Company's Tier 1 Leverage Ratio was 9.63% on March 31st, 2021, which is nearly two times the well-capitalized regulatory standard of 5%. Company has an abundance of liquidity.
The combination of the company's cash equivalents, borrowing availability at the Federal Reserve Bank, borrowing capacity at the Federal Home Loan Bank, and unpledged available for sale investment securities portfolio provided the company with over $5.67 billion of immediately available sources of liquidity. At March 31st, 2021, the company's allowance for credit losses totaled $55.1 million, or 0.75% of total loans outstanding. This compares to $60.9 million or 0.82% of loans outstanding at the end of the linked fourth quarter of 2020, and $55.7 million or 0.81% of loans outstanding at March 31st, 2020. The decrease in the company's allowance for credit losses is reflective of an improving economic outlook, low levels of net charge-offs, and a decrease in delinquent loans.
Non-performing loans decreased in the first quarter to $75.5 million, or 1.02% of loans outstanding, down from $76.9 million or 1.04% of loans outstanding at the end of the linked fourth quarter 2020, but up from $31.8 million or 0.46% of loans at the end of the first quarter of 2020, due primarily to the reclassification of certain hotel loans under extended forbearance from accrual to non-accruing status between the periods. The specifically identified reserves held against the company's non-performing loans totaled $3.6 million at March 31st, 2021. Loans 30 to 89 days delinquent totaled $19.7 million or 0.27% of loans outstanding at March 31st, 2021. This compares to loans 30 to 89 days delinquent of $44.3 million or 0.64% one year prior, and $34.8 million or 0.47% at the end of the linked fourth quarter.
Management believes the decrease in the 30 - 89 delinquent loans and the very low amount of net charge-offs reported in the first quarter was supported by the extraordinary federal and state government financial assistance provided to consumers throughout the pandemic. From a credit risk and lending perspective, the company continues to closely monitor the activities of its COVID-19 infected borrowers and develop loss mitigation strategies on a case-by-case basis, including but not limited to the extension of forbearance arrangements. As of March 31, 2021, the company had 47 borrowers in forbearance due to COVID-19 related financial hardship, representing $75.6 million in outstanding loan balances or 1% of total loans outstanding. This compares to 74 borrowers and $66.5 million in loans outstanding in forbearance at December 31, 2020.
Operationally, we will continue to adapt to the changing market conditions and remain focused on credit loss mitigation, new loan generation, and deployment of excess liquidity. We also expect net interest margin pressures to persist and remain well below our pre-pandemic levels. Fortunately, the company's diversified non-interest revenue streams, which represent approximately 38% of the company's total revenues, remain strong and are anticipated to mitigate the continued pressure on the net interest margin. In addition, the company's management team is actively implementing various earnings improvement initiatives, including revenue enhancements and cost-cutting measures intended to favorably impact future earnings. Thank you. I will now turn it back to Gary to open the line for questions.
We will now begin the question-and-answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. At this time, we will pause momentarily to assemble our roster. Our first question is from Alexander Twerdahl with Piper Sandler. Please go ahead.
Hey, good morning.
Morning, Alex.
Hey, first off, Joe, you ran through a number of items on NII and impacting the NIM that hit in the first quarter and are going to impact the second quarter, including the PPP fee, securities purchases, the redemption of the sub-debt, et cetera. Can you just slow down and go through those one more time and just kind of give us a sense for where, not necessarily the NIM, but where NII might be going into 2Q 2021?
It's a very good question, Alex. In the first quarter, we had significant payoff of PPP loans, the first draw of PPP loans, about $250 million. Not only did we have amortization of those net deferred fees, we also had an accelerated recognition of some of those fees. That contributed about just under $6 million in net interest income in the first quarter. We do expect that some of the remaining PPP net deferred fees, which on the first draw of PPP is about $3.4 million, we expect the majority of that to be recognized. Just on a PPP deferred fee basis, we would expect that to negatively impact net interest income by about $3 million. On the other side is we've continued to lower deposit funding. It's trickled down. It was about 11 basis points last quarter.
It's continued to come down a bit, which may provide some modest offset to that reduction. We've also had a pretty good first quarter given our seasonality around new loan originations effectively flat exclusive of that PPP. We have pretty good consumer portfolios Pipelines right now, which will contribute, I think, favorably to net interest income next quarter. We continue to evaluate opportunities to deploy additional monies in the securities portfolio. I think the expectation is that there is some inflation in the market. We hope that the intermediate area of the curve and the long end of the curve continues to move up a bit. We have some dry powder, more than some, $2 billion of dry powder at the end of the quarter, to deploy into the securities portfolio which, right now we're getting 10 basis points on that.
They're effectively empty calories on our balance sheet. We're looking for the right opportunities as the year plays out to invest some of that excess cash. I think, Alex, it is difficult to give you an exact call relative to next quarter. I think we have a couple things that, particularly around cash equivalent opportunities, investment opportunities, and a little bit of loan growth to support the second and third and fourth quarters.
Okay. In terms of the securities purchases that you did in the first quarter, when in the quarter were those, and are those going to have some impact on NII in 2Q?
Yeah. Alex, I'd have to pull up the actual security purchase dates. We've made security purchases throughout the quarter. Some of that will assist the second quarter results. I think just for modeling purposes, assumption mid-quarter is I think a fair assumption as to when we redeployed and invested some of those securities.
Okay, great. It's been around a year or so since you guys closed the Steuben deal. Obviously, M&A is a big part of the CBU story. Could you maybe give us some commentary on sort of what you're seeing in the M&A environment out there? A lot of the deals we've seen this year have been kind of different in terms of MOEs and bigger deals. I'm just curious if your thought processes around M&A have changed at all in terms of the types of deals that you guys would be considering in 2021.
No, Alex, it's Mark. I don't think our thinking has changed. I don't know that it's changed much really ever, at least for an extended period of time around the general philosophy, which is to partner with high-quality franchises that we feel can be sustainably additive to shareholder value. We're not going to do an MOE. Never say never, it's highly unlikely we're going to do an MOE. It's highly unlikely that we're going to do a larger scale transaction that, to us, just creates a lot more risk. It is inconsistent with our historical model of smaller deals that are more additive as opposed to bigger deals which tend to be less additive. At least in terms of shareholder value.
I think we'll continue along the pathway of the $1 billion, give or take, size transactions, generally in-market, contiguous markets, and those kind of franchises that are a good fit for us qualitatively and economically in terms of sustainable earnings and shareholder value. I don't think anything has changed. Yes, the market seems to have been busy lately with larger deals, larger institutions, more MOEs. I think from what my take is on it, a lot of the banks in our, let's call it target kind of profile, are still trading at lower multiples because of their market cap and their liquidity. I think that's where we have fairly significant opportunity. I think right now, a lot of those franchises are not getting the market recognition relative to larger cap companies.
I think there's going to be a fair bit of opportunity for us in the space that we're interested in, and we continue to be active in and have conversations and dialogue. As I've told our team, I suspect we will have the opportunity to do something constructive this year.
Okay. I think last time we spoke, maybe it was still a little bit too early to really be confident in due diligence around kind of the impact of the pandemic on balance sheets. Are you now at the point where you feel like you've seen enough and seen how a lot of these economies have been impacted by the stimulus and whatnot to actually get comfortable through the due diligence process?
Yeah. I think what I had said, Alex, was I would not do a bigger deal in the middle of the pandemic, or at least last year at some point. We'd still do a smaller transaction when we felt we had better visibility into the risk profile of the credit portfolio. Nothing's really changed there. I think a lot of the opportunities that we have over time are institutions that we know and we've followed for a long time, and we pay attention to. We have a pretty good
-feel already for their portfolio and their discipline around credit and other operational aspects of their business. I'm not at all concerned about the impact, the lingering, what you call it, of the pandemic. That will not, and has not, affected our thinking in any way on M&A opportunities.
Great. Thanks for taking my questions.
Thanks, Alex.
The next question is from Russell Gunther with D.A. Davidson. Please go ahead.
Hey, good morning, guys.
Morning, Russell.
Morning, Russell.
Hey, guys. First question would be on the employee benefit services line. Good year-over-year growth. Be curious to get your thoughts on the organic revenue projection there. Following up on the question about M&A, would a depository deal kind of preclude you from looking at acquisitions within your fee verticals and what those might be, whether it's in employee benefits or elsewhere?
Yeah, no. We had good growth in the employee benefits year-over-year. I think it was 8%, something like that. 6%. I don't remember exactly. It was pretty strong growth, and the expenses were flat. Actually, it might've been down a little bit. Anytime you can grow revenues and reduce expenses, that has an exponential impact on margins. Very good quarter for the employee benefits business. They continue to perform well. We expect they will continue to perform well. Interestingly enough, there are a lot of M&A opportunities in that space right now. There has been for the last 12 - 18 months. It's been a challenge to compete against private equity, who have different valuation models than us in some cases, in terms of valuations. We have some things percolating right now as well, and I think that will be ongoing in that vein.
That business is a very strong business. I think we clearly have critical mass in that business. The run rate on revenues this year is going to be $110 million or so at really good margins. I think that business will continue to perform really well. As to the question around whether acquisition opportunities in that space preclude us from kind of depository opportunities or vice versa, the answer is no, clearly not. I think historically, we've kind of done multiple transactions across disciplines historically, and we continue to do that. It is a different, for the most part, subset of folks that work other than me and Joe and a handful of other folks in kind of HR, IT, and some things.
It's a different level of effort with generally different kind of teams because obviously the teams in those business lines are actively engaged in those efforts and kind of lead those efforts in terms of identifying and supporting opportunities there. We clearly continue to work hard in both the depository side and the non-banking side of our business. We have also some opportunities in the insurance business as well that we're in the midst of pursuing. We expect to close on a small transaction, in fact, I think next month, and have some others that we're having discussions with as well. Wealth management is a little bit different. We've never done a lot in terms of buying whole businesses in wealth management. The pricing is really extreme, and sometimes the personalities are more difficult and challenging.
To me, it's a risk, but in wealth management, you don't really own the assets. You don't own the relationship. What you're buying is customer relationships. You don't own those relationships. In banking, the bank owns the relationship for the most part. Insurance, the business owns the relationship. It's a little bit different in wealth management, so we've never done a lot there. We have bought some books of businesses. Actually, a lot of them, and they've been very constructive. You buy a one or two-man shop that's more akin to kind of a significant signing bonus for bringing one or two or three folks on. A lot of times they're even structured as M&A. Those have worked out really well for us, and I think our bar is a little higher on doing something in terms of the wealth management businesses.
Clearly on the benefits businesses and the insurance, we've been active, and I expect we will. In fact, we're active right now, we'll continue to do that. Those businesses are really having a good year last year. You look at the first quarter, and it's impressive. Operating at a very high level right now.
I really appreciate the detailed thoughts there, Mark. My last question, guys, is on the expense side of things. In prepared remarks, you mentioned expense initiatives and results this quarter showed positive momentum were below consensus. Would just be curious to get a sense for your thoughts on the expense run rate going forward and any detail on the type of initiatives you were referring to in your prepared remarks. Thank you.
Good question, Russell. We saw back last year, second and third quarter that we were running into some margin headwinds and actually organized a management group to look hard at some of the expense line items and some opportunities on the revenue side. We started to actually implement some of those initiatives in the fourth quarter, third and fourth quarters, and now into the first quarter. We're working with our vendors on certain contract negotiations. We've done a handful of branch consolidations to reduce expenses on that side. We've looked at some other revenue line items in some of the commercial space to try to generate some additional revenues there. That's kind of the initiatives we've put in place.
On a going forward basis, we would expect to kind of contain, say, the year-over-year growth rate around expenses to something in the very low single digits on an annual quarter comparative basis. I'll say in normal times, the line item for OpEx might grow 3% or 4% or 5% in a year. We're trying to contain it below that really to make up for some of the challenges around the margin.
Thanks, Joe.
Just to add a bit to that. Joe mentioned some branch consolidations. We've done about 20 in the past year. I think we're going to do some more, not a lot more. There's been some expense benefit from that. We have relied solely on attrition, which has worked out well to reduce the workforce there. We have not, despite the fact we consolidated about 20 branches and we'll do a handful more, we haven't taken out directly any FTEs other than through attrition. I think this year we're forecasting based on branch traffic. If you look at before the pandemic, our run rate on branch transactions, we closed the branches, then they opened back up. We looked at traffic again, and it was down about 17% pre-COVID. It's still down about 17% pre-COVID.
If we look at our plan around consolidation, it ends up being around that 17% number reduction in branch FTEs which is a triple digit number of FTEs. There's some reasonable amount of expense and cost reductions there. If you look at the branches we consolidated, go on SNL and look at our branch map. There's density there. We have density in certain markets where I would characterize us as over-dense. We have a fair bit of opportunity, I think, to consolidate in a prudent way. This isn't about expense reduction. This is about essentially, and I'll comment it more broadly. Branch traffic for us for 10 years prior to COVID had declined almost exactly 4% a year. COVID came, and people found other channels, digital channels, and it gapped down another 17%.
What we are doing is, I would say broadly, we are divesting in analog and investing in digital. Ensuring that we have an appropriate branch structure consistent with the trends in the market, the trends of our customers, how they're using our channels, whether it be analog channels like branches and drive-throughs, or whether it be digital channels like mobile and ATMs and remote deposit capture and online banking and all of those kinds of things, self-service functionality. We are just trying to pair up the continued decline in analog channels with our investment in digital channels. We've done a fair bit around the branches. We'll, again, probably do a little bit more, but we're trying to do it prudently. This isn't an expense grab, trying to just close branches for the sake of closing.
I think one of the things when you have kind of a history of acquisitions both whole bank and branch transactions that we've had for the last 15 years, it's not, you know, difficult to become overdense in markets. We're just trying to address the overdensity we have in some of our markets as a result of the history of M&A activity.
Thank you both for taking my question.
Thank you, Russ.
The next question is from Matthew Breese with Stephens Inc. Please go ahead.
Good morning. Hey, just a question on the cash position and how you're thinking about it. Of the $2.2 billion, how much of that are you defining as required versus maybe we need to hold on to because there's going to be some volatility in PPP and deposit balances and the follow-up to that is how much should we expect to be kind of put to work over the next few quarters, either securities and loans?
Yeah. It's a very good question, Matt. In fact prior to the call, actually, we talked to our chief investment officer about deployment and what opportunities might be out there over the coming year. In essence, we have the $2 billion. Our hope and expectation is that we would have about half of that, 50% of that invested over the next couple of quarters leaving some aside for a potential runoff and future opportunities. We're, I guess, believing that there is some inflation in the market which might drive up the long end of the curve. Potentially if the Fed ever talks about tapering again, maybe toward the second half of the year, we could see a little bit of an increase there. We're looking at that $2 billion effectively as dry powder looking to invest maybe half of that over the coming three quarters or so.
Obviously, we're watching the market daily and just looking for those opportunities.
I would say, just to add beyond that, this isn't just about reinvestment of $2 billion, $2.2 billion, I think of liquidity, but it's also about the out year impact on margin and on net interest income. We are extremely, like most banks, I suspect, highly asset sensitive. It does not work against our ALCO models. In fact, it helps balance our ALCO models by investing some of that liquidity and reducing, giving away, in fact, trading away some of that upside risk in rising rates to trade off against lower margin and NIM in the declining rate environment. Investing, I think some of it, clearly not all of it, opportunistically. If we don't have the opportunity, we may be on a call in two years saying we still have $2.2 billion.
I don't think we're necessarily going to be in a rush or undisciplined about how we invest it. I think Joe said over the next couple of quarters, which I think that would be fabulous if that happened. I question whether it will or it won't. I think half of it is probably an area where it would be helpful to kind of current net interest income in NIM. Would help us from an ALCO standpoint in terms of balancing the risk we have in falling rates and the benefit to rising rates. A lot of this is not the discussions that we have is not driven by how do we use the $2 billion to create more earnings. It's not about that. We'll be disciplined. We have a lot of other earnings levers that we can pull and are pulling and have pulled.
We'll be disciplined about it. If we get the opportunity, we will pull the trigger, but it certainly wouldn't be on the entire $2 billion because there's clearly still some risk that over time, I think the runoff of the excess liquidity is going to take longer than the build up, right? I mean, you look at the balance sheet a year ago, two years ago in particular, the liquidity didn't look anything like this. I think it'll take a little bit longer for it to run off than it did for it to accumulate because clearly the stimulus and PPP and those kinds of things. People reducing kind of their living expenses, businesses reducing operating expenses. It's going to take a while.
That's, I guess from my perspective, just wanted to make the point that our interest rate sensitivity when I think about liquidity and liquidity deployment, I don't think about earnings. I think about interest rate risk into the future and how to manage that.
Okay. Maybe tying this discussion back into Alex's earlier question in regards to net interest income. If I strip away PPP, I'm looking at core NII this quarter in around $86 million. As you deploy or think about deploying half of the liquidity, do you think that number, that $86 million represents a floor for where we are in this current economic and interest rate environment?
Good question, Matt. I think it's pretty close to the floor. If we do deploy some of that excess liquidity. That certainly will help. I think for Alex's question, late in the fourth quarter, we had a significant maturity of investment securities, and we redeployed some of that during the first quarter. Not all of it was deployed right at the beginning of the quarter, so we do have a little momentum from the deployment of that $400+ million of investment securities. I know we're looking at the PPP as non-core, and I do understand that. The other side of that, it was earned, and that was the card we were dealt, and we did, I think, a pretty good job of playing that card and originating PPP. We will have some recognition, I think, of the deferred fees throughout this year.
If we continue to deploy some of that securities and have some loan growth, we potentially start to restore some of that net interest income outcome. We're obviously hopeful that 86 is the floor and think that we do have some potential momentum filling in behind the PPP recognition after we conclude 2021.
Okay. Last one is just in regards to the loan pipelines. You talked about the consumer pipeline. It sounded a bit more optimistic. What are the components? Is it auto heavy or residential heavy? You mentioned that you have some work to do on the commercial side. Just curious about the components and what does the pipeline tell you about your local economy and path towards recovery?
Hey, Matt, it's Joe. I'll take that. You mentioned residential. The residential pipeline is growing about 30% quarter-over-quarter. It's across most of our markets. The expectation is that it will continue to be strong as we make our way through the second quarter and into the third quarter. Good activity. As you may know, we rolled out beginning of the year, tail end of last year, beginning of this year, a digital mortgage platform. We're in the digital age, and we're enjoying some upside potential from that as well. To give you a sense, the mortgage pipeline sits at about $170 million. I'm not sure the last time I saw that number. That's positive. The other positive on the retail side is the indirect portfolio, the car business.
That's been growing this year as a result of a change in focus on our part. We spent a little bit more time focusing in on volume and a little less time on return, recognizing that we need to make some more loans around here. The indirect portfolio, although it doesn't have a pipeline, has been growing terrifically, and it's up almost 3% year- to- date. We like what we see. Again, it's across all of the footprints that we're in. On the commercial side, it's a little different story. We're about half of where we were this time last year. Keep in mind, we took an approach around PPP where we were doing it all internally. We took people off the street, if you will, the commercial bankers and retail bankers, to handle all of the PPP activity.
That's been going on now for 14, 15 months. I'm not surprised that the portfolio or the pipeline is where it is. Also recognizing just the pandemic and the impact it's had on just general activity overall. It's been off. The commercial pipeline is about half of what it was this time last year. Residential mortgage pipeline up nicely. The application volume and the indirect portfolio also is up nicely. We expect those to continue. As Mark said, we're in the process of rebuilding the commercial portfolio. That'll take some time. We're seeing a little bit of light at the end of the tunnel. All geographies have some activity. We're cautiously optimistic that we'll get the commercial pipeline heading in the right direction.
Great. I appreciate it. That's all I had. Thank you.
Sure.
Thanks.
Again, if you have a question, please press star then one. Please stand by as we poll for questions. Showing no further questions, this concludes our question-and-answer session. I would like to turn the conference back over to Mr. Tryniski for any closing remarks.
Nothing other than we will talk to you at the end of the next quarter. Thank you all for joining again.
The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.